Initial Public Offering (IPO) is the main route for a company to get listed and enjoy the opportunities offered on the stock exchanges. However, before the IPO is listed, the equity shares of the companies are traded in the gray market which is unregulated by SEBI. Gray markets are viewed as a means of buying equity shares of a new company before they are officially listed on the exchanges. Furthermore, equity shares offered in an IPO are typically sold at a premium, with the price determined by supply and demand, and can be quite volatile. Significantly, transactions in the gray market are done in cash and in person. But what could the IPO’s performance mean for listings in this unregulated market?
According to Krishna Raghavan, Dy. CEO, UnlistedCart, company’s stock performance in gray Market This may indicate the potential demand and interest in the stock once it is officially listed on the stock exchange.
Meanwhile, Manish Khanna co-founder at Unlisted Assets said, Generally, the share price performance of Unlisted Pre IPO Companies are reflected through the Gray Market Premium (GMP). Shares may list at a premium if GMP is higher. Investors may be concerned about the performance of the stock post listing if the premium is low or negative. By analyzing its GMP one can easily predict how the stock is likely to perform on the day of listing.
UnlistedCart CEO clarified that if the shares are trading at a premium in the gray market, it could indicate that there is strong demand for the stock and investors believe it will do well once it gets officially listed . This can lead to higher trading volumes and stronger opening prices when the stock is listed on the exchange.
That said, on the other hand, if the shares are trading at a discount—or less than the IPO price—in the gray market, this may indicate that there is less interest in the stock and that investors believe it will May not perform once it is officially listed. “This could result in lower trading volumes and a weaker opening price if listed on the stock exchange,” Raghavan said.
Thus, Raghavan said, “It is important to note that gray market performance is not the only indicator of a stock’s potential performance after it is officially listed, and it is not a guarantee of future performance. Other factors such as the company’s Fundamentals, industry trends, and overall market conditions also play a role in determining a stock’s performance.”
Last year, 40 Indian corporates raised 59,412 crore through main board IPO, half 1,18,723 crore (all-time high) raised by 63 IPOs in 2021.
The year 2023 is likely to see a healthy pipeline of IPOs.
Disclaimer: The views and recommendations given above are of individual analysts or broking companies and not of Mint. We advise investors to do due diligence with certified experts before making any investment decision.
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